Sunday, 20 January 2013

Original Article 2007

Apple Global MVNO

Apple deal with operators is a de facto hardware MVNO

It is no secret that a typical MVNO may only manage to get a 10% to 40% margin on calls, onto which it has to add its costs. This is usually OK, as many of these have either already been sunk, written off or are as low as they can go if the MVNO core business is already a “no frills” card calling or other related business. However, it is still said margin before costs. It is, therefore no surprise that the most successful MVNOs so far have been “no frills” MVNOs as reported in by Business week in this article and as per my response below (previous article; RE: Why Europe’s MVNOs sing).

As far back as 2003, when I started writing my next generation MVNO report, I had the hardware MVNO as one of the next big business models. The two main contenders were Apple and Dell. Dell fell victim, in the UK at least, to Vodafone’s deal with Intel to give away 3G data cards with every Centrino laptop in exchange for merely signing a direct debit for the Vodafone SIM inside it. The Apple MVNO, however, has finally come to bear fruit, and in a way nobody could imagine: It is a Virtual, Virtual MVNO, as according to these articles in the Financial Times and the BBC, it has managed to get between 10% and 40% margin for all the iPhones, and on top of it no costs. The extra burden of billing, one of the biggest costs for an MVNO, is borne by the host network operator, as it’s the second major cost: customer care. Furthermore, it has managed to do what very few MVNOs have managed to date, export the model to become a global MVNO. To boot, its business plan manages to overcome the other great hurdle to any MVNO expansion: handset subsidies; as people are falling over themselves to buy an iphone, something to date that only Nokia and Sony Ericsson have managed to do with a premium handset to date (8800, 8210, N95, P800, P900, etc). You have got to hand it to Apple, they have pulled off the biggest MVNO coup to date. There is one final even more surprising fact, no, not that they managed it without my help (apart from buying a copy of my report): The biggest surprise is how they have managed to actually get the MNOs to bid against them, rather than the usual beauty contest that building an MVNO entails. Mobile Network Operators have not been in that seat since they managed to bid UK and Germany 3G licences into the billions. So how have they managed that? It’s simple, due to the nature of the way networks were set-up, in larger economies there are networks that are predominantly focussed at a certain demographic. In the UK, the larger part of the youth market is on o2. However, it will not have escaped any of the networks that they could have poached a good few of the other’s customers.

So, for the record virtual mobile network operator, means 10-40% plus costs; virtual, virtual mobile operator means 10% to 40% with no costs, well at least if you are Apple.

MVNO from a Customer Acquisition Perspective

One thing that is often overlooked by MVNOs is to look at the MVNO from the customer's perspective. This is important, as one of the quickest routes to failed MVNO bin is to create a mini-me mobile network, as you essentially create a product that has no differentiation but somebody else's version has much more marketing, retail presence, support, existing customers, etc.

The customer perspective is an important reminder if the fact that as an MVNO, while you are a partner of one MNO, you are a competitor of the other MNOs, other MVNOs on your host network, and more importantly, your host MNO if you are not careful. Why is this important? Never lose site of the fact that tmobile he wholesale business is all about acquire customers, a

MNO to the Customer

The MNO's routes to market before the MVNO were typically either direct, via a retail store, which may or may not be its own now and via a service provider, see the red and red/blue sections below. Essentially, for the MNO, the MVNO (and MVNA) has allowed the MNO to reach a wider customer base (grey section) than the MNO ordinarily would have. The MVNA is critical, as it is the "last mile" attracting the most niche markets. The triangular shape of the MVNA indicates how the MVNA is where the most bleeding edge activity is happening such as micro-MVNOs with just a Facebook page, where the brand almost belongs to its customers, and customers may go from brand to brand.

MVNO to the customer

The MVNO to the customer route is important as the MVNO has to realise that, while they may have an angle to their niche, they also have strong competition from a) the network operators, who have shiny marketing, and b) that a customer is by now a complex beast, and other MVNOs and indeed, smaller niches from MVNAs may be equally attractive.

Moreover, it is important for the MNO and MVNO to be honest about which customers in a niche they are better at attracting and maintaining. You, the MVNO, may own a niche lock stock and smoking barrel, however by the time you get to a customer who wants a subsidised iPhone and unlimited texts, data and voice... its it not better to pass that customer on your your host MNO as a lead????

Customer to the MVNO

Why is the customer going to chose your product? If you just rebrand an MVNO, what value are you adding? Do not underestimate small value adds, sometimes the simplest things like customer care in your language is enough, and key: its a differentiator!

I reality, if we look at the grey customer section, it goes from niche on the far left, to mass market on the right.

Original MVNO from customer perspective page

MVNO DEFINED FROM A CUSTOMER PERSPECTIVE

To Fully understand the MVNO, and moreover Next Generation MVNOs, we have to look outside the legacy network led definitions of an MVNO, as an MVNO is customer driven, and therefore business driven business model. From a customer perspective both the MNO and the MVNO are their "Network Provider". That is Virgin Mobile is seen to its customer as their network provider, not the host MNO, just as an MNO is seen as a network provider. The benefit here for the MNO is sales without marketing spend, but more often than not sales the MNO was unlikely to reach on its own.

A service provider, or airtime provider would be like Martin Dawes in the UK for example, which was one of the originally mandated airtime providers in the UK; here, both the host 'MNO' and the 'Service Provider' are seen to provide the service to the customer. This was sometimes confusing, and of little value-add to the customer, with the only differentiation coming in the shape of price and maybe some differentiated billing. In general however, the customer seems to prefer a single brand. The same is the case for the "powered by" model - the customer does not care which MNO powered their MVNO, they have already chosen their "network". Hence Virgin Mobile being voted the best network every year in a row since launch in the UK. Similarly, there would be little value in the MVNE and MVNO brand being apparent to the customer.

Saturday, 9 June 2012

LTE MVNO

I get asked a lot about LTE and the MVNO, and well be speaking about it and chairing a panel on it at the 2013 MVNO conference. Imust get asked about LTE and MVNO as much as I get asked about LTE and mobile apps if not more, and given that apps is a much, much bigger industry, well then it must be a big question!

Like many "MNO things" in MVNO, if you apply them without any thought, i.e. in what we will call a legacy manner, again, it will be your quickest route to MVNO failure, as you will just be selling what a bigger version of you is selling and spending more on marketing on and has bigger margins on so can squeeze you. However, I also get bored silly at conferences and meetings on LTE and the MVNO and how LTE will impact the market in general, and the main reason is that a lot of people are applying the same old principles as they did last time and the fundamental mistake:

Technology does not solve problems; it presents opportunities that can solve problems, but then this solution comes with its own set of problems, like everything in life...

The Fundamental mistake in terms of an MVNO is the fact that most MVNOs are still not leveraging 3G or even 2G data, how is evolution going to make a difference: the answer is manifold and varies depending on where we are talking about and the market there:

In general: in general the only difference could be that hopefully LTE will make the MNOs a little more open to discuss data propositions for the MVNO. At present, MNOs, even the good ones, tend to have a mental seizure with data, as they expect the MVNO to assume the risk of arbitrage. MVNOs in turn, then have a similar level of mental breakdown when they insist they need bundles... when in fact they can get on selling at least 30% to 50% of the data they can sell by simply selling data to the 50% of the market that use under 100mb of data per month as I mentioned in a recent post and not worry their MNO with potential capacity strains that cause their MNO mental seizure in the first place. The reality here is that the MNOs should stop flat rating data that causes this issues in the first place, however they will not for fear of churn, or if they all do it price collusion, so LTE may well be the catalyst that spurs proper MNO data pricing that does not let 5% of the data leeching users ruin the experience and business models of the rest of the world!

US market. Here LTE will be different, in that the CDMA players will finally have a play in the multimedia IMS space and a much more equal pegging that the two tier wholesale market at present, where the CDMA wholesale rate reflects the lower desirability of end users and business over GSM based solutions. We can expect the LTE players to be able to launch more, and more exciting MVNOs with LTE

Data SIM usage. I have been saying for a long time (5-10) years that there will be a rise of SIM usage and that the MNO will not want to, let alone be able to fulfil all of these opportunities themselves. Indeed, if they do not, many of them will find less appealing alternatives that cut out the MNO all together. An example is GPS, at present people either tether to their phone when they can be bothered for probably 5% of journeys, or download off-line or even use a dongle: in essence, the MNO is making nothing here as this data will inevitably be an unseen blimp on a flat rate data tariff, or an extra 2mb twice a year on a standard tariff, or at worse be by-passed altogether (download via ISP). if they do a deal with an MVNO that manages these SIMs (maybe 1,000,000 SIMs to an HLR and low QoS, latency, etc that these devices will work fine with, vs. high availability, fully loaded generic SIMs or even MNO M2M SIMs which are still engineered towards an average scenario and over engineered quality that IBM requires, not what Joe Blogs wants for his 10 different devices....) the user will happily pay Tom Tom or Garmin £5 per month for the SIM and some other services they bundle, like auto updates, being able to track where you have been on a website, and even pay another £5 per month for the data; for every journey. This could be £2-5 per month incremental revenue for every TomTom or Garmin in car navigation device sold. As, I believe KPN coined the phrase; "wholesale is better than no sale". at present 95% of PAID mobile data solutions go unfulfilled... (I have run some numbers for this based on business models that have not made it, vs. the whole of business models I have put to market, and the lack of extra data sold on those that did go to market - its shocking!)

M2M, as above, M2M has been engineered to the early adopter solutions that were defined by consultancies and technologists to cater for the first proposals, like tracking shipping containers around the world. Without going into details, the MNO is geared presently around small amounts of data over long periods of time and usually extended or wide spread distances. There are many other niche opportunities that have been aching to get to market, but have not been on thee in-house radar. All LTE will add, I hope, here is the ability for a two tier model of large local bandwidth and widespread lower bandwidth, which is not catered for at the moment without using wi-fi for the high bandwidth. While this may seem like a solution, if you think getting mobile coverage in your home, office and other locations is hard, try covering whole company locations and warehouses with wi-fi and integrating it with thee mobile network: there are many who will say its easy, and they are either lying or have never had to project manage the mess they designed! an all-mobile solution for this will be a game changer, assuming it changes the mind-set

The worst part? that the first and the second two could be done now, just that LTE will change the way a) people perceive data at the wholesale level, and b) will drive MNOs to drive usage and so we will see the business plans that were possible technically 5-10 years ago, finally be enabled, not by a technology, but by the circumstances that the arrival of a new technology has created.